UNIT 8- CST

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THE OBJECTS OF THE ACT

To formulate principles for determining

(a)When a sale or purchase takes place in the course of inter state trade or commerce.

(b)When a sale or purchase takes place outside a State.

(c)When a sale or purchase takes place in the course of import into or export from India

To provide for levy, collection and distribution of taxeson sale of goods in the course of inter state trade or commerce

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Basic Scheme of CST ActSALES TAX REVENUE TO STATES - The revenue collected from sales

tax should be retained by the State only. CST in each state is

administered by the local sales tax authorities of each stateCST is payable in the state from which movement of goods

commences ( from which goods are sold).

CST is administered by the Sales Tax authorities of each state.The State Government Sales Tax Officer who collects and assessesthe local (State) sales tax also collects and assesses the CentralSales Tax

CST is tax on inter state sale of goods.

Sale is inter state when (a) sale occasions movement of goods

from one state to another or (b) is effected by transfer of documents during their movement from one State to another

DECLARED GOODS - Some goods are declared as goods of specialimportance and restrictions are placed on power of State Governments tolevy tax on such goods

CST rate depends on the State Vat Rate, but generally it is 3%

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RE ST RI CT ION S ON P OWER S OF TAXAT ION

Restrictions on power of State Government on

imposition of tax on sale or purchase of goods are asfollows:

State Government cannot impose tax on sale andpurchase during the import or export or tax on sale

outside the StateParliament is authorized to formulate principles for

determining when a sale or purchase takes place outsidethe State or in course of import or export

Parliament can place restrictions on tax of sale orpurchase of goods declared as goods of specialimportance

Newspapers are specifically excluded from purview of both the Union and the State list.

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MODE OF A SAL E S T R AN SACT ION

I nitially, buyer places an order on seller for supply of goods,called Purchase Order. After the goods ordered areready, the buyer may come to the business place(godown, factory or warehouse) of seller and obtaindelivery of goods. This will be Sale within the State.Alternatively, buyer may ask seller to send the goods bytransport. I n such cases, the seller will book theconsignment by rail, road, ship or air as per requirementof buyer to the destination where buyer requires thegoods. I n such a case, generally,

(a)if buyer and seller are in the same State, it is I ntra-Statesale

(b)if they are in different States, it is I nter-State sale(c)if buyer is outside I ndia, it is sale during export(d)if seller is outside I ndia, it is sale during import.

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Stock Transfer/Branch Transfer

One of the basic and obvious conditions of I nter-State sale is that there should be a sale .I f a manufacturer sends goods to his branch inother State, it is not a sale as you cannot sellto yourself. Similarly, if a dealer sends goodsto his Agent in other State who stocks goodson behalf of the dealer , it is not a sale. Suchagent is usually called Consignment Agent.Goods are dispatched to another State onconsignment basis and the person dispatchinggoods retains ownership of goods. Since nosale is involved, there is no I nter State Sale.

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IN TER STAT E SAL E

Section 6(1) is called Charging Section as it imposeslevy on sales of goods on I nter State sale.

I mportant words in charging

(a)Levy is on sale of goods

(b)Sale should be of goods

(c)There is no levy on electrical energy, though

electrical energy is goods (d)Sale should be in course of inter state Trade or

Commerce as defined

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ME ANING OF IN TER STAT E SAL E

A sale or purchase of goods shall be deemed totake place in the course of I nter state trade orcommerce if the sale or purchase

(a) Occasions the movement of goods from oneState to another

(b) I s effected by transfer of documents of title of the goods during their movement from one stateto another

The first mode is direct inter state sale while thesecond mode is transfer of documents

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Sale which occasions movement of goods

I t was held that a sale can be said to be in thecourse of inter state only if the twoconditions are satisfied

(a)Sale of goods

(b)A transport of those goods from one state toanother

O ccasions means is the immediate cause of or causes

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BAS I C P RIN CI PL E S

Complete sale is requiredBuyer and seller may be in the same state (Location

is immaterial)

There should be express or implied stipulation for

movement of goods outside the StateCompleted sale may be before or after the

movement of goods is immaterial. The movement of goods and the sale must be inseparably connected.

Movement in pursuance to agreement to sale issufficient

Goods must physically move from one state toanother

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Property in goods (ownership) may pass in eitherstate. I t is immaterial in which state the ownership

of the goods passes to the buyer

Movement of goods should be incident of sale andshould be necessitated by the contract of sale (

State of Tamil Nadu Vs Cement Distributors)

Mode of transport is immaterial

Sale can inter state even if the buyer takesdelivery within State of seller.

Sale should not conclude in different states

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IN TER STAT E SAL E BY T R AN S FER OF DO CU MEN TS

A sale or purchase of goods shall be

deemed to take place in the course of inter state trade or commerce if thesale or purchase is effected by atransfer of documents of the title to thegoods during the movement from onestate to another

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W hat is document of title of goods ?Document of title of goods means a document which evidences

that the person holding the document has title to goodsrepresented by the document. Handing over the document is asgood as handing over the goods which the document represents

When the goods are handed over to the carrier, he hands over areceipt to the seller. The seller sends the receipt to the buyer.The buyer gets the delivery of goods on submission of thereceipt to the carrier at other end. The receipt of the carrier is

documents of title of goods. Such document is

LR (lorry receipt) for road transport

RR (rail receipt) for rail transport

BL (bill of lading) for sea transport

AWB (air way bill) for transport by air

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Transfer of documents by endorsement

The document of title may be in favor of buyer/ agentof seller/ banker/ self .

When document is in favor of the above then the

above person should transfer the document in favorof the purchaser. Such transfer is normally done byway of endorsement on the document of title.

Endorsement though not essential is a convenientmode of transfer as it gives proof that the transfer isin due course of trade and is usually followed.

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I nvoice andendorsed RR byseller in favor of Dealer C

Goods sent directly by rail

Seller A

Dealer C

Buyer B

Dealer C invoices buyerB and RR is furtherendorsed in favor of

buyer B by dealer C

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W hat is transfer during movement of goods ?

Sale/purchase will be inter state if sale/purchaseis effected by transfer of documents of titleduring the movement of goods from one state toanother.

Often, the goods may reach the destinationquickly before the documents may reach thebuyer after the goods reach the destination.

I f endorsement is made after goods reachdestination but before the delivery of goods istaken from the carrier, the transfer of documentswill really not be during the movement of goods

and sale may not be termed as inter state sale.

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To solve the above problem:

Movement of goods is complete only when delivery is taken

Section 3 of CST specifically states:

The movement of goods commences when goods are delivered tocarrier and terminates when delivery is taken from the carrier.Thus, if goods are booked from Mumbai to Chennai by railway, themovement of goods will commence as soon as goods are handedover to the railway booking office at Mumbai for transport. Themovement will be deemed to continue even if the goods reachChennai and are lying in possession of railways. Movement will bedeemed to have terminated only when delivery of goods is taken at

Chennai on submission of RR. Goods will be deemed to be inmovement for sales tax purposes till delivery is taken atdestination.

Endorsement can be made anytime after the goods are handedover to the carrier but before the delivery is taken from the carrier

at the destination.

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SAL E O UTS IDE TH E STAT E

Sale outside state definition is important because it cannot be taxedby the State Government.

Section 4(1) defines Sale outside the state as the sale and purchaseis inside a state then such sale or purchase will be outside all otherstates.

Sale inside state: Section 4(2) states Sale or purchase of goodsshall deemed to take place inside a State if the goods are withinthe State in the case of specific or ascertained goods, at the timethe contract of sale is made.

Specific goods: Specific goods mean goods identified and agreedupon at the time a contract of sale is made. Goods identified afterthe sale is ascertained goods.

Sale within the state is known as residuary sale

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Q UA N TU M OF CST PAYABL E

F or the purpose of specified rates thebuyers are classified into three

(a) Government Buyers ( F orm D)

(b) Registered Buyers ( F orm C)

(c) Un registered Buyers (No F orm)

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CST rates at a glance:

Sa l ax r ate fo r thesa le w ith i the State

CST r ate i case of sa le to r eg iste r eddea le r s

CST r ate i case of sa le toun r eg iste r eddea le r s

Nil Nil Nil1% 1% 1%2% 2% 2%3% 3% 3%

4% 3% 4%8% 3% 8%

10% 3% 10%12 50% 3% 12 50%

20% 3% 20%

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Aggregate Sale price : means the amountpayable to the dealer as consideration of sale of any goods, less any sum allowed ascash discount according to the prevailingpractice of trade, but inclusive of any sumcharged for anything done by the dealer inrespect of the goods at the time of or beforethe delivery thereof, other than the cost of freight or delivery cost.

The sale price is inclusive of CST.

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TU RNOVER

Turnover is the aggregate of the saleprice received and receivable by thedealer in respect of sales of any goods inthe course of inter state trade, madeduring the prescribed period (usuallyquarterly ) less CST.

P RE SC RI B ED P ERIOD

I t is the period in which sales tax returnhas to be filed as per the local sales taxlaw.

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FOR MULA

100 * Sale price

TU RNOVER = ___________________

100 + Rate of Tax

Sale price * Rate of tax

TAX PAYABL E = ________________________

100 + Rate of tax

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Aggregate Sale price during July-Sept 07 wasR s.10,300 in the inter state sale from Haryana. I f thegoods are sold within the State of Haryana, sales taxrate is 12.5%. Buyer from D elhi has issueddeclaration in form C. W hat is the turnover and thetax payable?

Since the buyer has issued F orm C, the tax rate applicable

is 3%100 * 10,300

Turnover= _______________ = Rs.10,000

100 +3

10,300 * 3

Tax Payable = _______________ = Rs.300

100 +3

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R ound off of CST Payable:

As per the section 9B of CST Act, tax rate or interestor penalty payable or refund obtainable shall berounded off to the nearest rupee.

This does not apply to collection of any amount bydealer by way of tax in respect of sales made by him..That is the dealer can collect tax in the invoicewithout rounding up.

But, while paying tax to the Government onmonthly/ quarterly basis the amount should berounded to nearest rupee

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I nclusions in the Sale price

Any sum charged by the dealer at or before thedelivery

Central Sales Tax

Taxes and duties on goods sold

Cess which is liability of manufacturer is includible(Rubber Cess)

Packing Material and Packing ChargesCost of freight

Dharamda (charity)

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E xclusions in the Sale price

Cash discountTrade Discount

Quantity Discount

F reight and transport charges for delivery of goods.Subsidy paid by the Government not part of turnover.

Export incentives to the seller

Duty drawback on exportsDeposits for returnable containers.

Transit insurance

Cost of installation

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G oods R eturned

Section 8(b) provides that if goods are returnedby buyer within six months , its sale price will bededucted from aggregate sale price, if satisfactory evidence is produced before the salestax authority in respect of the same

The claim of deduction in respect of the suchreturned goods can be allowable in theassessment year relating to the financial year inwhich sale of goods had taken place. I f theassessment is completed, adjustment or refundcan be demanded by claiming in time.

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G oods R ejected by buyer

The period of six months is not applicable in respect of rejected goods as in respect of rejected goods, there is no

complete sale at all within the meaning of CST Act as thepurchasing party has not accepted the goods.

Return of goods is a bilateral transaction brought about bythe consent of seller and purchaser.

Rejection of goods is unilateral transaction, open only to

the purchaser.

Hence, the liability of sales tax does not arise even if thegoods come after six months.

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A dealer effected following inter state sales during thequarter Julyv07- Sept 07

(a) I nvoice no 25 dated 5 th July, 07 Rs.1,12,400 (taxnot shown separately)

(b) I nvoice no 26 dated 13 th August, 07 Rs.50,000 plustax@4%

(c) I nvoice no 27 dated 18 th September, 07 Rs.20,000plus tax@4%

(d) I nvoice no 28 dated 27 th September, 07 Rs.31,200

Goods returned within six months wereRs.8,400(inclusive of taxes). Sales tax rate is 4% if the goods are sold within the state. What is theturnover and tax payable if the buyers did not issuethe C form?

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A DE AL ER

He is person one who is involved inthe activities of buying, selling,

distributing the goods directly orindirectly either for cash or for deferredpayment, for commission, brokerageetc.

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R egistration of a dealer under CST

C ST Act makes provisions for registration of dealer. Registration brings many

advantages e.g. the dealer can issue C form and purchase goods at concessionalrate.

Compulsory Registration under CST - Section 2(f) states that'registered dealer' means a dealer who is registered under section 7 of

CST Act. As per section 7(1), every dealer liable to pay Central Sales Taxhas to register himself with sales tax authority.

As per section 6(1) of CST Act, every dealer effecting sale in the course of I nter State trade or commerce is liable to pay CST. Thus, only thosedealers who effect inter state sales are required to register under CSTAct. Effect means bring about, accomplish, cause to exist or occur.Thus,intermediaries like agents, transporters etc. who only facilitate sales arenot required to be registered, as they do not effect sales.

Central Government has authorised State Governments to prescribe StateSales Tax authorities authorised for the purpose of registration. Thus,registration under CST Act is done by State Sales Tax authorities who are

authorised for the purpose.

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V oluntary Registration

A dealer registered with State sales tax authorities may

voluntarily apply for registration under CST Act even if he isnot liable to pay Central Sales Tax [section 7(2) of CST Act].

He is entitled to apply for registration even if goods sold orpurchased by him are exempt under State sales tax law.

This application for registration can be made any time. Thisprovision is mainly useful when the dealer makes purchasesin I nter State but all his sales are within the State. Thus, heis not liable for payment of any CST.

However, he can make purchases in I nter State atconcessional rate only if he is registered. Hence, he canregister even if he is not liable to pay any CST.

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A pplication for registration

Application for registration should be made inprescribed form A as per CST (Registration andTurnover) Rules; within 30 days from the date whendealer becomes liable to CST.

Application fee of Rs. 25 is payable ( by way of court fee stamps ).

Application has to be signed by ( a ) proprietor of business ( b ) one of the partners in case of businessowned by partnership firm ( c ) Karta or Manager of HU F ( d ) director or principal officer of Company ( e ) principalofficer in case of association of individuals or ( f ) officerauthorised by Government in case of Government.

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Additional Places of business

I f a dealer has places of business indifferent States, he has to obtainseparate registration in each State.

However, if he has more than oneplaces of business within the sameState, he has to get only oneregistration with additional places of business endorsed on the Certificate.Definition

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D ocuments required at time of registration

Documents required at the time of registration vary

from State to State. Normally, following are askedfor

(a)Particulars of Directors/ partners(b)Copies of articles of association, memorandum in

case of company and partnership deed if applicantis a firm

(c)Copies of rent agreements(d)Nominations as Manager

(e)List of places of business, godown(f)Details of machinery(g)Details of bankers(h)Photographs of directors / partners.

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Points to be remembered

The profit motive is not compulsory for the sales taxpurpose

The tax is levied on sales not profit

Sale may be to registered or unregistered buyer

Element of price is essentialF ree supply is not sale

Mortgage is not sale

Depot transfer is not a sale

Goods means any article, thing or commodity and which ismovable.

Goods does not include newspapers, stocks, shares andsecurities

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SAL E IN TH E CO U R S E OF E XP OR T

The principle is that the Export sales have to be tax free so that I ndianexports become competitive in world market. We should exportgoods and services not taxes. Similarly, imports are subject tocustoms duty and hence these should not be subject to sales tax.

Export sale means direct exports Sale in the course of export is a much broader concept.

Apart from direct sales it also includes

(a)Sale by the transfer of documents after goods cross customsfrontier

(b) Penultimate sale for export

(c) Export with the help of an agent

I f export is the result of sale, it is in the course of export. Even indirect

sale could be sale in the course of export

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The last sale or purchase of goods preceding thesale or purchase occasioning the export of thosegoods out of the territory of I ndia shall also be

deemed to be in the course of such export, if such lastsale or purchase took place after, and was for thepurpose of complying with, the arrangement or orderfor or in relation to such export. This is termed aspenultimate sale

Sale to tourist in I ndia is not sale in the course of export. This is so even if goods are purchased by theforeign tourist in duty free area in airport beforedeparture.

Goods should be destined to foreign country, though

actual reaching the destination is not necessary

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SAL E IN CO UR S E OF E XP OR T BY T R AN S FER OF DO CU MEN TS

I t is possible to have sale by transfer of documents after goodscross the Customs frontiers I .e. goods are cleared by customsauthorities and are handed over to carrier for loading .

Crossing customs frontiers means crossing the limits of thearea of a customs station in which the imported or exportedgoods are ordinarily kept for clearance by customs authorities.

Relevance of this provision is that documents of title can betransferred immediately after goods are entrusted to carrierafter obtaining clearance from Custom authorities for export. I tis not necessary to wait till the ship/ aircraft actually leavesI ndia.

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P EN ULT I MAT E SAL E FOR E XP OR T

Export is a specialized business and many small unitsare unable to export directly. Export is often effectedthrough specialized agencies like Export Houses etc,

Such indirect exports also need exemption fromtaxes to make the products productive. Hence suchpenultimate sale is also deemed to be in the courseof export and is exempt from tax.

Purchase of packing material for export arepermissible.

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Exemption to penultimate sale is subject to thecondition that the penultimate sale is

(a) F or the purpose of complying with agreement ororder in relation to export

(b) Such sale is made after agreement or order inrelation to sale

(c) Same goods which are sold in penultimate saleshould be exported.

I n other words, the final exporter should be inpossession of export order from foreign buyer andshould take delivery of goods from the suppliermaking penultimate sale solely for execution of such export order and export the same goods

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SAL E IN TH E CO U R S E OF I MP OR T

A sale or purchase of goods is deemed to be in courseof import of goods into the territory of I ndia, only if

(a)Sale pr purchase either occasions such import

(b) I s effected by the transfer of documents before thegoods cross customs frontiers of I ndia.

I mports could be

(a)Direct I mports

(b) I mport through agent

(c) I mport by transfer of documents

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SAL E BY A GEN TS IN INDI AI t is common to import goods through agents.

M/s K G Khosla & Co entered into contract for sale with DGS & D, New Delhi (ACentral Government Department) for supply of axle bodies.

These were manufactured by principal of KG Khosla & Co in Belgium

Goods were to be inspected by representatives of DGS & D in Belgium but DGS& D were entitled to reject the same on receipt in I ndia if goods were found tobe not as per specifications

Goods were cleared by Khosla & Co from port and were dispatched by railway

to Government departments

I t was held that Khosla and Co were agents of foreign manufacturers and saleby Khosla & Co to Government departments was in the course of imports. I ttwo sales are integrated ot inter linked so as to form one transaction, they are

sale in course of imports

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Privity of contract between the ultimate buyerand exporter is essential.

Privity of Contract

A doctrine of contract law that prevents anyperson from seeking the enforcement of acontract, or suing on its terms, unless they are aparty to that contract.

I f the contract between foreign supplier and importeron one hand and importer and I ndian buyer on theother hand are independent of each other, the salewithin I ndia cannot be termed as sale in the courseof imports.

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E x: CST V s G ramophone Co of I ndia (1992)

DGS & D placed an order on gramophone co. of I ndia

The goods were to be imported, for which import

license was obtained on recommendation of DGS & D.

I t was held that there was no privity of contract of between foreign manufacturer and DSG & D and hencesale in I ndia by Gramophone Co ltd is not sale in thecourse of import.

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SAL E IN TH E CO U R S E OF I MP OR T BY T R AN S FER OF DO CU MEN TS

Many importers acting as agents, import goods and documents aretransferred to ultimate buyer in I ndia. Such buyer usually clears thegoods from customs.

This is sale in the course of import if the documents are transferredbefore goods are cleared from customs.

I t was held that sale was complete when goods are on high seas orbefore or before they cross customs barrier is a sale in the course of

import. I t was also held that import is complete when goods cross thecustoms barrier in I ndia.

I mport stars when goods cross the customs barrier of foreign countryand ends when it crosses the customs barrier in the importing country.

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SAL E AF TER I MP OR T I S A DI ST IN CT SAL E

An importer may import the goods, stock the sameand then sell to buyers. This is not sale in the courseof import.

Tax would be payable when the goods are sold inI ndia as if the goods are being sold for the first timein I ndia.

Such sale will be inter state or intra state.

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